Climate Change Plans and the Impact on Global Trade - Global Trade Magazine
  July 28th, 2021 | Written by

Climate Change Plans and the Impact on Global Trade

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  • The resilience of companies to new climate changes depends on a risk management process.
  • Supply chains "break down" when natural disasters are affected by a rapidly changing climate.
  • It's no secret to world leaders that decarbonizing supply chains look very difficult in practice.

Changes in our planet’s climate are the most significant threat to almost any business. Climate change directly affects companies’ costs, as eco norms require many firms to look for environmentally friendly materials and processes.

The resilience of companies to new climate changes depends on a risk management process, a ready-made business plan, and a laid-out governance structure. Alas, many companies don’t have access to relevant climate information, so they don’t plan for or mitigate physical risk.

Facilities, supply chains, working networks, customers, and markets are the first targets that suffer from physical climate risk. For example, supply chains “break down” when natural disasters are affected by a rapidly changing climate.

How does climate affect production?

Climate change significantly increases the price of any production, reducing the speed with which supplies can be delivered. The quality of the goods and services produced also suffers.

Also, production and deliveries are entirely “broken” in timing due to minor delays in components and goods. Companies need to best manage the uncertainty associated with possible significant disruptions occurring in supply chains.

Assessing supply chain risks

Many companies are accustomed to assessing their supply chains from factors related to policy, regulatory, market, and technological nuances. Any unforeseen change in any of these areas puts the supply chain at significant risk, threatening companies’ ability to operate.

Weather is similarly considered in short- and medium-term supply chains. This data helps companies search for other suppliers and enter new financial markets. Proactive forecasting activities allow for short-term changes in supply chain decisions. Alas, this activity is considered inefficient, ad hoc, and short-sighted.

Annual adjustments with supply chain investments that lack long-term understandings of weather and climate trends will become highly problematic. This approach should be bypassed these days. Companies better start understanding the medium- and long-term physical risks in the climate environment.

Instead of planning a year, companies would do well to look a couple of years ahead and invest in those sources at the least risk from the climate.

Decarbonizing Supply Chains

While supply chain decarbonization processes are complex, many firms can capitalize on multiple climate issues by implementing such methods.

Companies in sectors that are most user-driven have higher per-chain emissions than direct emissions. By encouraging suppliers to create zero-emission supply chains, companies can increase their climate footprint to ensure that emissions in the sectors where the situation is most problematic are reduced to accelerate steps to combat climate change.

It’s no secret to world leaders that decarbonizing supply chains look very difficult in practice. Even the leading companies have difficulty with the necessary data and setting goals and standards that their suppliers adhere to.

Involving the entire (fragmented) supplier landscape can be an almost impossible task. The situation looks complicated if the emissions are at the beginning of the chain and collective action is needed to eliminate them.

More than half of the world’s greenhouse gas emissions come from food, construction, clothing, consumer goods, electronics, automotive, trucking, and more. Indirectly, the share is often controlled by a few companies. End-consumer spending will not be able to increase spending in supply chains with zero.

Remarkably, about 40% of each of these supply chain emissions can be reduced by taking advantage of cyclicality, efficiency, and renewable energy sources that will have minimal impact on the price of all products. With zero emissions in the supply chain at the end-user, costs would increase to a maximum of 4%.

Supply chain decarbonization problems are solvable with many steps for each company:

-Create a comprehensive baseline emissions plan that will be gradually filled with actual supplier information;

-Setting ambitious with comprehensive emission reduction goals;

-A complete review of product design options;

-Revision of geographic supply strategy;

-Setting ambitious purchasing standards;

-Working together with suppliers to co-finance emission reduction levers;

-Working together with peers to agree on sectoral goals that increase impact with leveling the playing field;

-Leveraging economies of scale by increasing demand to lower the price of green solutions;

-Developing internal governance mechanisms where emission reduction will be a guiding mechanism.

Preparing supply chains for climate change

Supply chain management needs to be directed toward preparing for the unknown to ensure greater competitiveness and relevance in an ever-changing industrial landscape.

Many companies are now implementing solutions that address the industry’s role in mitigating supply chain risks due to climate change.

There are ways to protect supply chains from physical climate risk. Since most of the population lives near the coast, there is a risk that sea levels will rise, there will be more storms, flooding, and hurricanes, which only exacerbates the growing dangers.

Buying/building a property in a coastal area that lacks coastal flood risk mitigation infrastructure will not be the best idea to implement.

The electric commerce industry uses more materials in packaging that are suitable for recycling or biodegradability – an encouraging sign that consumers are concerned about climate change.

As the dialogue on climate change occurs among consumers and businesses, it is becoming increasingly clear that addressing climate change is already necessary.

Smart contracts and Global Trade: future effect on climate change plans

In recent times, bitcoin and the rest of the blockchain network have triggered the sustainable development of many industries in Global Trade. Smart contracts that run on blockchain will provide the world with just the right new ways to combat climate change and its effects.

However, many companies have missed the potential of smart contracts that are fully trackable, transparent, and irreversible in self-executing contracts that only work on blockchain to combat climate change.

It is no secret that blockchain companies are in no way affected by what happens in the environment. For example, day trading altcoins consistently break records among enticed traders. Smart contracts can help create globally accessible and automated reward systems that directly reward companies for engaging in sustainable practices (regenerative agriculture, carbon offsets, and so on).

The fight against climate change needs a more considerable change in habitual global consumption, and smart contracts could be just the right tool to encourage participation in areas of global “green” direction.